Business Schools

Europe's B-Schools Eye Wealthy Alums

Skimpy endowments and reluctant donors used to be the rule for European schools. The game is changing

As the war for talent in MBA programs continues to heat up, schools in Europe are finding themselves behind in the area that is most important when it comes to attracting and keeping top faculty and students: money. At elite U.S. business schools, the average endowment hovers around $478 million. At the top European schools, the number is more like one-tenth of that (BusinessWeek.com, 3/31/08). "[European institutions] admire their fund-raising success," says Don Kirkwood, director of development at London Business School (LBS).

Why the financial disparity? The answer lies in the culture. A school in the U.S. can simply approach alumni and get results through monetary donations and bequests. Alumni respond as if it's their duty. In Europe it's not so easy. "There hasn't been historically a culture of private giving to institutions of higher education in Europe," says Laura Tyson, former dean of LBS and currently a professor at Berkeley's Haas School of Business. "So business schools have had to rely on fees and their executive education more than donor gifts."

Taking a Hint From U.S. Schools

On top of this is the fact that, because most European business schools are relatively young compared with their U.S. counterparts, few have been on the receiving end of the type of large legacy gifts U.S. programs enjoy. This means nearly all the money coming to programs in Europe goes directly to supporting day-to-day operations.

But instead of chalking it up as a loss, some European B-schools are getting creative, taking it upon themselves to introduce a culture of giving among alumni and corporate backers that mirrors what U.S. schools have been doing for years. At some schools, this has meant doing little things such as creating class-gift funds and alumni associations. Others are taking bigger risks by going outside of the traditional applicant pool for dean candidates and even opening offices overseas, where their alumni are. And though it's early in the game, they are seeing some promising results.

In 2006, France's INSEAD made a controversial move in hiring Frank Brown, a U.S. businessman with no academic background, as dean. Administrators at the B-school maintained that someone with a résumé like Brown's—26 years at PriceWaterhouseCoopers, experience building relationships with companies—was what the school needed to make fund-raising a priority. Some alumni guessed Brown wouldn't last a year.

A Simple Philosophy

But now that Brown has been 18 months in office, his appointment looks like a smart move. When Brown started at INSEAD, the school's endowment was €75 million, about $119 million. Today the number has grown to €110 million, equivalent to roughly $174 million. Brown's philosophy is simple: Be transparent with alumni and donors about exactly where their money is going. "We explain the impact that their money will have on the school," Brown says. "We treat them like investors." Brown is satisfied with the progress but knows he doesn't have all the advantages of a U.S. program. "We're oftentimes finding that we're competing with one arm tied behind our backs," he says. "We still manage to do pretty well, but I'd still like to improve."

Hoping to enjoy similar success, LBS selected Robin Buchanan, a senior partner at Bain & Co., to take the reins as dean of the B-school last summer. "Robin has a Rolodex to die for and great experience working with businesses," London's Kirkwood says. Clearly, Buchanan's top priority is improving the school's financial position, but administrators aren't leaving the task solely in the new dean's hands. Over the past few years a push to get students to commit to a class gift has been successful, as has been targeting reunion classes to build reserves of scholarship money. According to Kirkwood, one way to encourage giving is to compare LBS's endowment, which currently stands at about £7.9, or about $16 million, with others. "We play against the competitiveness of MBAs," he says.

New Hires to Focus on Fund-Raising

It's rare even at U.S. B-schools to hire a dean from outside of academia, but in Tyson's view, choosing someone with a background in business makes sense, especially when funding is a key focus. "Having deans from the business world will help schools build relationships with business to get the funding they need," she says.

At Barcelona's ESADE, former dean Xavier Mendoza took a page from the U.S. B-school playbook and created a position two years ago to focus on fund-raising. So far, 28 multinational companies have pledged a total of €2.5 million over the next four years, among them, IBM (IBM), Deloitte, and Nestlé (NESN.F). Mendoza, now a professor at ESADE, is optimistic about the early success. "We're starting to make progress," he says.

But it's not simply a culture of giving—or lack thereof—that is keeping European B-schools from reaching endowment numbers comparable to those in the U.S. European business school budgets place less of an emphasis on endowment building and focus more on covering day-to-day operational costs. To INSEAD's Brown, this poses a problem. "You can't guarantee that you're going to have repeating monetary performance every year," he says. "If you're spending current funds on faculty salary packages, how can you guarantee the money is going to be there next year?" In INSEAD's case, recent fund-raising is focused on growing the endowment, but few European schools have this luxury.

Opening Offices in New York

However, this isn't to say schools aren't thinking of the future. In fact, some schools—like Britain's Cass Business School, Spain's IESE, and INSEAD—have launched efforts to increase recognition in the U.S. "Friend-raising and profile-raising are important parts of fund-raising," London's Buchanan says. "The USA is a very important area in this regard." Later this year, LBS will be open an office in New York in the hopes of developing relationships with corporations and alumni. But London won't be the first to open up shop in New York.

Last fall, IESE opened an office in midtown Manhattan and formed a committee of New York alumni charged with developing ways to raise money in the U.S. Eric Weber, associate dean, and director of IESE's New York office, calls his school's efforts in the U.S. a work in progress. "I envision that we will launch various capital campaigns with our alumni and with companies to build up a fund to do things in the U.S.," Weber says. After discussions with alumni, Weber feels certain a U.S.-based project can be successful. "In talking to them, the culture of giving really comes out," he says. "They say that they'll be generous."

The Long Race to Funding

Also, to strengthen their brand in North America, IESE has announced plans to launch an executive program later this year based out of Miami, designed for professionals with business interests in Latin America. "Companies have heard of us remotely, but they don't know what we can offer them," Weber says. "We can serve our American clients better from the U.S. than from Europe." With a presence in New York and Miami, the hope is companies will become more familiar with the Spanish school. Weber says it's too early to measure results, but he's optimistic. "It's a long race," he says.

If the finish line is overtaking a school like Harvard when it comes to endowment figures, the race will never be won. (Harvard Business School's endowment is $2.8 billion.) But as European B-schools begin to mature and alumni are made more aware of the importance of giving, it's not a stretch to think that in a decade or two, endowment numbers will be similar to those of some U.S. schools. It won't be easy, but they appear to be on the right track.